Washington DC

Evolution of a Startup: From Co-working to Campus

Washington DC’s tech scene is finally making a name for itself in the larger tech conversation. The region’s startup ecosystem has grown at a rapid pace over the past five years, and people are beginning to take notice. There has been a marked increase in venture capital activity in the region in recent years for startups that have grown from early stage to more mature business ventures. This is the stage where startups begin to compete against DC’s more established, primarily government-facing industries and the federal government itself, for talent. This growth phase is also the stage where startups need t think strategically about their occupancy needs and strategies.

“…heads of real estate need to understand how they can increase the agility and flexibility of their portfolios. Moving from allocations of space that rely on ‘one person, one desk’ can unlock significant space savings by freeing up under-occupied space and allow growing businesses to scale without expanding their footprints. Flexible offices are also becoming a core part of property strategies in the sector as companies look to limit long-term lease liabilities and quickly ramp up their operations in new markets.”

The report also talks about how companies are adapting to workforce preferences and engines of growth shifting more toward cities. This movement compels leading/larger firms to increase their footprints in urban locations, creating more competition with smaller startup firms for young talent who want to live and work in cities. The move to urban areas by large and established companies can be evidenced by major employers like General Electric relocating to Boston, or even McDonald’s Corp. or Coca-Cola moving their workforces out of the suburbs and into their respective cities.

In an area like DC this trend can be seen in recent moves by companies such as Nestle relocating its North American headquarters to Rosslyn Virginia, just over the bridge from DC, and Marriott International’s planned headquarters in downtown Bethesda. In downtown DC, companies like Blackboard have recently recommitted to expanding and staying within the city’s core, while a number of the nation’s tech giants like Google, Facebook, and Amazon have put down stakes in an effort to remain connected to federal policymakers.

Technology startups often evolve at a different pace and manner than non-tech companies, while the growth pattern for most startups is essentially the same. Below is short overview of that process.

PHASE 1: CO-WORKING /SHARED OFFICE

The startup has begun. Workers, usually just a small team of 10 or fewer individuals, are focused on creating a real product or service and aim for market adoption. Many startups are located in co-working or shared spaces at this point, and even coffee shops or garages are common as startups need low-cost, flexible, and short-term spaces to attract talent and foster collaboration.

PHASE 2: FIRST OFFICE

The startup has launched to the market and now the growing team of workers is focused on expanded product/service mix and market growth. Most startups are in their first office, but it’s usually a modest space. Many startups face the need to quickly grow (or shrink) in square footage to adapt to a changing number of employees. Building a brand identity in the space can be important, but budgets are still small and costs-consciousness is paramount.

PHASE 3: HEADQUARTERS

The startup has evolved and often the 2nd/3rd generation of the product has been released. Many startups continue to utilize their collaborative and shared space roots, embracing open offices. But now budgets have grown and the brand can be more evident. This can result in the need for higher tenant improvement allowances as well as more infrastructure for things like IT.

PHASE 4: NATIONAL /INTERNATIONAL PRESENCE

The startup is now a growing but established business. It must have a “complete” corporate organization and functions, including things like a human resources team, a legal team, an accounting team, and many other corporate departments. Often there is now a multi-national market reach and it’s likely the startup aims to have an IPO or be acquired.

This can often mean needing offices in a number of locations, with space for several hundred employees. Growth often stabilizes and is more predictable, but many startups also face decisions about being acquired or acquiring other companies, which can result in rapid changes in real estate needs.

PHASE 5: ESTABLISHMENT AND MATURITY

The startup is focused on organic growth and M&A. Many startups consider purchasing office space of their own, whether that is real estate in an urban core or building a whole campus of their own. This can be a significant expense, but allows the company to have a long term/permanent presence.

Startups now can stop feeling like “startups” since they are mature companies, but many continue to foster a startup mentality among employees by creating unique workspaces and using real estate to create collaboration and engagement.

Theo Slagle is a Director with Cushman & Wakefield’s Technology Practice Group in Washington, D.C. Contact him at theo.slagle@cushwake.com